Lost in Transition: How Ireland and Three Other Small Open Economies Responded to Europeanisation 1987-2013

This thesis provides a political economy account of how four small open economies – Finland, Denmark, the Netherlands, and Ireland – have coped with the adaptation required by the exogenous pressures of Europeanisation over a period of 25 years. The research is grounded in Polyanian conceptualising of the interaction of States and markets using Varieties of Capitalism as a theoretical foundation. Starting with Katzenstein’s (1985) comparative study as a departure point, the research evaluates how each country responded to deepening EU integration over a four stage periodisation broadly aligned to critical junctures of integration, and closing with the fifth anniversary of the Lehman Bros bank collapse on 15th September, 2013. Particular attention is paid to the Irish case, with a view to resolving the puzzling question of why its ‘Celtic Tiger’ phase of development proved to be unsustainable. The research also identifies the areas where the different Varieties of Capitalism converge and diverge. The findings are that the ‘Democratic Corporatism’ which Katzenstein identified as the means by which small open economies could cope with market forces by balancing them with social compensation, is still intact. Finland, Denmark, and the Netherlands have all made necessary reforms to welfare regimes and labour markets without compromising societal values. While having to accommodate to an extent to liberalising forces, they remain developmental states. Ireland exhibited developmentalist characteristics during the 1990s. It caught up with the rest of Europe in a material sense but not in respect of the capabilities required to carry this developmentalism forward to the new millennium. On the contrary, the 2000s saw the country make serious policy errors principally due to an intellectual failure to assimilate the requirements of living in a currency union. Moreover, democratic corporatism in an Irish context was not embedded. It is imperative that Ireland recaptures this developmentalism and repertories of action to help it do so are identified. A number of dilemmas confronting the European integration project are outlined. Foremost among them is the challenge of embarking on a course of deeper integration necessary to consolidate the future of the currency in circumstances where political legitimacy is seriously undermined by austerity. A singular focus on fiscal adjustment has resulted in a deflationary debt crisis which seems set to continue for some time. There is no obvious escape route for Ireland. Indeed the situation is much complicated by its relationship with Britain which is becoming increasingly semi-detached from Europe. Within the policy space available to it, the best course for Ireland is to reinvent itself as a Social Market Economy, as far as possible in the image of its northern European peers. For all the bleakness of the current environment there is opportunity too. The institutional architecture of EMU is so dysfunctional that it must eventually yield to reform if European integration as a project is to survive. Therein lies the possibility for a social democratic revival if a convincing narrative for it can be communicated